Legalization of Cannabis FAQ

Answers to questions submitted during the Professional Matters webinar about the impacts of cannabis legalization on commercial and residential trading services, rental property management and strata management services.

A latent defect is a defect that is not discoverable by observation and reasonable inquiry. It is material if it renders the real estate dangerous, unfit for habitation, unfit for the purpose for which a party is acquiring it, or if it would involve great expense to repair. It can also include a defect that is required to be remedied under the order of a local government or authority. See the definition of a material latent defect in section 5-13 of the Rules.

A seller’s licensee who is aware of and fails to disclose, conceals, or makes non-innocent misrepresentations with regard to a material latent defect may become liable to the buyer for damages suffered as a result. Consequently, defects in the property from cannabis cultivation that meet this definition ought to be disclosed.

However, unless the legal cultivation of cannabis plants renders the property unfit for the prospective buyer’s purpose (and this purpose has been made known to the seller’s licensee), it is unlikely that the legal cultivation of cannabis plants alone would constitute a material latent defect which must be disclosed.

While licensees are obligated to disclose material latent defects, stigmas are different than a defect. Although a seller has no legal obligation to disclose stigma, the safest approach may be to disclose it in order to prevent problems with the transaction in the future. This is a conversation you should have with your client.

In summary, it is important for licensees representing buyers to find out the history of a property with regard to cannabis cultivation and use, and disclose that information to the buyer client. Ask the sellers about the history of the property, and recommend to the buyer client that they consider hiring qualified professionals, such as air quality testers, to conduct inspections for defects that are not observable.

If acting for a seller, carefully consider whether anything relating to the property may constitute a material latent defect which you have an obligation to disclose. If uncertain, consult with your managing broker. Failure to take these simple steps can result in professional repercussions.

There are some unique rules for tenants with regard to cannabis . If the tenancy agreement was entered into before October 17, 2018, the agreement will be deemed to include a term that prohibits growing cannabis plants anywhere in or on residential property under the Residential Property Act or in the common areas of manufactured home parks under the Manufactured Home Park Tenancy Act. The deeming provisions will not apply if the tenant is growing medical plants and growing those plants is not contrary to a term of the tenancy agreement, if the tenant is authorized under applicable federal law to grow the medical plants at the residence and the tenant is in compliance with the requirements under those laws.

Unless the legal cultivation of cannabis plants renders the property unfit for the prospective buyer’s purpose (and this purpose has been made known to the seller’s licensee), it is unlikely that the legal cultivation of cannabis plants alone would constitute a material latent defect which must be disclosed.

Licensees have a duty to act honestly and with reasonable care and skill when providing services. They must make reasonable inquiries into the condition of the property their clients are interested in. Positive or negative information that arises as a result of those inquiries must be disclosed if that information relates to a material latent defect as defined in section 5-13 of the Rules.

Not of itself but improper installation and operation of the legal grow op may result in damage to the structure. The Real Estate Council of British Columbia imposes certain duties on licensees to act honestly and with reasonable care and skill when providing services. In other words, licensees are obligated to make reasonable inquiries into the condition of the property their clients are interested in. Positive or negative information that arises as a result of those inquiries must be disclosed if that information relates to a material latent defect as defined in Rule 5-13 of the Rules.

Changes to the Residential Tenancy Act and the Manufactured Home Park Tenancy Act around growing and smoking of recreational cannabis came into force when non-medical cannabis was legalized on October 17, 2018.

The location of the grow op on the property is irrelevant because premises include the land and all outbuildings. If a former medicinal grow-op was properly licensed, appropriately permitted and then decommissioned, disclosure may not be required. However, were all necessary permits obtained? Was wiring done by a professional? There is always the risk of a material latent defect being present regardless of the legality of the grow-op and so disclosure, regardless of where it is on the premises, may every well be required.

Changes to the Residential Tenancy Act and the Manufactured Home Park Tenancy Act around growing and smoking of recreational cannabis came into force when non-medical cannabis was legalized on October 17, 2018.

In the case of an existing tenancy, the status of a medical grow-op that was in place prior to the legislation; while it was operating legally under the access to cannabis for medical purposes regulations, will continue to exist with this new legislation. What existed before will exist into the future. New tenancy agreements may restrict home cultivation.

Because the former use of a property, even if it has been remediated and re-permitted, may still have implications with respect to financing and/or insurance, depending on the policies of particular lenders or insurers, it may still be of material importance to a buyer.

A buyer’s agent, over and above any disclosure obligations that a listing agent may have, must use reasonable efforts to discover relevant facts about any property a client is considering acquiring.

The British Columbia Real Estate Association creates and monitors the property disclosure statement forms and as of October 17, 2018 they modified the forms and reminded licensees that there are several forms in use for disclosure. One for residential property one for rural land and buildings and also one for strata units. Each of those disclosure forms is different and unique and it’s important that licensees use the correct forms. So the disclosure that’s still required to be made as to whether it has been used to grow Marijuana, other than as permitted by law or to manufacture illegal substances but also the material latent defect comes into play. The rule 5-13 has been in play for several years now and licensees should be aware of it. It’s usually reprinted on the PDFs and it includes defects that are not discoverable by the buyer through reasonable inspection of the property. They include defects which were under the real estate so potentially dangerous, unfit for habitation, unfit for the purpose for which the buyer is acquiring it, if the buyer made that purpose known to the seller, or if the seller has otherwise become aware of the purposes. The circumstances that affects the real estate in respect to which the local government or other local government authority is given notice from the seller indicating that the circumstance must or should be remedied, for example a lack of a proper building permit and other permits that might affect the real estate. So all of those fall under the material latent defect that is in play under the new legislation.

A licensee has the same obligations to disclose a material latent defect to a prospective tenant as to a prospective Buyer. You can read more in this Report from Council article on disclosure requirements when renting or leasing property.